Benefits of Purchase Order Funding

Most new and growing resellers and wholesalers have a very common dilemma. Their suppliers insist that they pay for goods up front. However, their own clients insist on getting 30 or 60 day payment terms. Few companies, especially startups, can carry the costs of operating the business for 60 days while waiting to get paid. And, those that can wait that long to get paid usually do so at the expense of future growth. They survive by turning orders away and downshifting their businesses, all while waiting to get paid.

Is bank financing the solution to this dilemma? Hardly. Banks don’t usually lend to startups. And when they do lend money, the process is long and complicated. Furthermore, most banks will require that the business owner present 3 years worth of audited financial statements showing a profit before making a loan.

But what is your business does not qualify for bank financing? There is an alternative called purchase order financing, and it offers a number of benefits that exceeds what most banks can offer. Its benefits include:

1. PO financing is available to startups and growing companies

2. It covers up to 100% of all supplier expenses

3. PO funding grows with you and is based on your sales potential

4. Can be set up in days – rather than months

So, what is purchase order funding? It a financial option that provides you with funds to deliver the goods on your confirmed non-cancelable purchase orders. It provides you with the necessary financing to pay your suppliers, freight and associated fees. The transaction is settled once your client actually pays for the goods and requires few out of pocket expenses. The collateral for the transaction is your client’s ability to honor the purchase order and pay for the goods.

Factoring companies, which offer po financing, charge for their services based on a number of variables such as the size of the transaction, the complexity and the financial strength of the customer paying for the goods. The charges will be either a percentage of the utilized funds – or in some instances – a percentage of the sales price.

It is also common to use po financing in conjunction with a/r factoring. Factoring is used to finance the invoice that is generated from the po financing transaction and it’s used to close the purchase order financing line. Invoice Factoring is usually cheaper than po financing, so using the two together helps reduce the total cost of the transaction.